Question 1

The "infant industry" argument for tariffs is criticized:

Accepted Answer

The "infant industry" argument for tariffs is criticized for multiple reasons. Firstly, it can be difficult to determine which industries actually merit protection. Secondly, direct subsidies may be a more effective means of stimulating such industries. Finally, there is a risk that tariffs may continue even after the industry has reached maturity, leading to inefficiencies and harm to consumers.

Question 2

Dumping of goods abroad:

Accepted Answer

Dumping of goods abroad may be part of a firm's price discrimination strategy, where they lower the price in the foreign market to gain market share and charge a higher price in their home market. This is not a case for permanent tariffs, nor does it necessarily relate to a nation's strategy to rectify its trade deficit. It does not drive up prices of the dumped goods, as they are typically sold at a lower price.

Question 3

Which is a valid counterargument to the infant industry argument for protective tariffs?

Accepted Answer

The counterargument to the infant industry argument is that it may be difficult to determine which industries will become successful in the long term and have a comparative advantage. Therefore, protecting these industries may actually inhibit economic growth by preventing the free flow of resources to industries that could have a competitive advantage in the global market. Option A is incorrect because protecting only exporting industries would not necessarily benefit the overall economy. Option C is a potential alternative strategy, but it does not necessarily negate the infant industry argument. Option D is also a potential alternative strategy, but it does not necessarily address the concerns raised by the counterargument.

Question 4

Diversification for stability argument is given as an excuse for imposing tariff and quotas against imports in some countries.This argument is based on:

Accepted Answer

The diversification for stability argument is based on the fact that some highly specialized economies are very dependent on international markets for their income. Therefore, imposing tariffs and quotas can help protect their economy from fluctuations in international markets, providing stability. Option B is incorrect as it talks about a country that does not want any foreign income, which is not related to the argument of diversification for stability. Option C is incorrect as there are economic costs associated with imposing tariffs and quotas, including potential retaliation from other countries and higher prices for domestic consumers. Option D is incorrect as it refers to a specific country and not a general argument.

Question 5

The basic difference in the economic effects of a tariff compared with a quota is that a:

Accepted Answer

A tariff generates revenue for the government, while a quota does not. A quota restricts the quantity of imports and does not generate revenue, whereas a tariff places a tax on imported goods and generates revenue for the government. Both a tariff and a quota can raise product prices, but this is not the main difference in their economic effects.

Question 6

Which is a valid counterargument to the call for higher tariffs to save Canadian jobs?

Accepted Answer

The counterargument in option D is that while imports may eliminate some Canadian jobs, they also create others, so the net effect on employment may be negligible. This argument suggests that protecting Canadian jobs through higher tariffs may not be the most effective solution and may even harm Canadian consumers by raising prices. Options A, B, and C all argue for protectionist policies to level the playing field or protect Canadian workers, but they do not address the potential negative consequences of such policies.

Question 7

When a tariff or quota on a product is removed, the action:

Accepted Answer

When a tariff or quota is removed, it increases competition in the market, which can drive prices down. This benefits consumers by allowing them to purchase the product at a lower price.

Question 8

Other things equal, a tariff is:

Accepted Answer

A tariff is superior to an import quota for Canadians because a tariff generates revenue for the federal government. This revenue can be used for various purposes such as funding public goods and services, reducing budget deficits, or lowering taxes. In contrast, an import quota restricts the quantity of imported goods, which may lead to higher prices for consumers and reduced variety and quality of goods. Additionally, an import quota may not generate any revenue for the government.

Question 9

Which is not a commonly heard argument for protectionism?

Accepted Answer

This argument is not commonly heard in favor of protectionism because it actually contradicts the premise of protecting domestic industries. When other countries' economies grow and they import less, this actually harms domestic industries that rely on exports. Therefore, those who advocate for protectionism would not typically use this argument in support of their position.

Question 10

Dumping is:

Accepted Answer

Dumping refers to selling a good in a foreign market at a price lower than its domestic price or lower than its production cost, which is a form of price discrimination. Dumping can harm domestic producers in the foreign market and lead to the imposition of retaliatory tariffs by the affected country.

Question 11

In comparing a tariff and an import quota we find that:

Accepted Answer

A tariff is a tax on imports, which generates revenue for the government. An import quota, however, limits the quantity of imports allowed into the country and does not generate revenue for the government. Therefore, choice B is the correct answer.

Question 12

If Canadian government were to impose a quota on wristwatches imported from Switzerland, the:

Accepted Answer

Imposing a quota on imported wristwatches from Switzerland would limit the number of watches entering Canada, reducing the total supply of watches in the Canadian market. This would likely lead to a decrease in the total quantity of watches (both domestically produced and imported) purchased in Canada, as the reduced supply could increase prices, making watches less affordable for some consumers.

Question 13

Imposing tariffs to increase domestic employment?

Accepted Answer

Imposing tariffs to increase domestic employment is referred to as a "beggar thy neighbour" policy because it aims to improve a country's own economic situation at the expense of others. This approach can lead to retaliatory measures from other countries, potentially harming international trade relations.

Question 14

Which is not commonly offered as a reason to support protectionism and abandon free trade?

Accepted Answer

Maintaining military self-sufficiency, increasing domestic employment, and allowing infant industries to mature and become competitive are commonly offered reasons to support protectionism and abandon free trade. However, promoting specialization and increasing worldwide production levels is not typically seen as a reason to support protectionism since free trade is believed to lead to greater specialization and increased production levels globally.

Question 15

The statement that "tariffs are needed to protect Canadian firms from foreign producers which sell excess goods in the Canadian market at less than cost" would be most closely associated with which tariff argument?

Accepted Answer

The argument of protecting Canadian firms from foreign producers which sell excess goods in the Canadian market at less than cost is commonly used to justify the imposition of anti-dumping tariffs. Dumping occurs when a foreign producer sells goods in the domestic market at a price lower than their normal value, which can harm domestic producers by undercutting their prices and potentially driving them out of business. The imposition of anti-dumping tariffs aims to offset the price advantage of the foreign producer and protect domestic firms from unfair competition.

Question 16

A major difficulty with the argument that trade barriers are necessary because foreign workers are paid low wages is that:

Accepted Answer

Wage rates and labour productivity are directly related because higher productivity can lead to higher wages, as workers are able to produce more value for their employers. This relationship undermines the argument for trade barriers based on low foreign wages, as it does not account for the productivity levels that might justify those wages.

Question 17

As it relates to international trade, "dumping":

Accepted Answer

Dumping is the practice of exporting goods to a foreign market at a price lower than the domestic market or below the cost of production. This practice can harm domestic producers by flooding the market with cheap imports, leading to reduced sales and lower profits. Therefore, many countries have anti-dumping laws in place to protect their domestic industries.

Question 18

Studies show that:

Accepted Answer

Research has consistently shown that the costs of trade barriers usually exceed their benefits, leading to an overall efficiency loss for society. This is because trade barriers generally result in reduced competition, increased prices for consumers, reduced variety of goods, and reduced efficiency in businesses. While some industries and countries may benefit temporarily from trade barriers, in the long run, the costs usually outweigh the benefits.

Question 19

Dumping is the sale of a product in a foreign market:

Accepted Answer

Dumping refers to the practice of selling a product in a foreign market at a price below its domestic price or cost of production. This can be done to gain a competitive advantage or to eliminate competition in the foreign market. It is often considered to be a form of unfair trade practice and is subject to anti-dumping regulations in many countries.

Question 20

The "increased-domestic-employment" argument for tariff protection holds that:

Accepted Answer

The "increased-domestic-employment" argument for tariff protection holds that an increase in tariffs will increase the price of imported goods, making them less competitive with domestically produced goods. This will lead to increased demand for domestic products, which in turn will stimulate domestic employment as industries expand to meet the increased demand. The result will be an increase in net exports, as domestic industries become more competitive in the international market. Therefore, the best choice is D, which states that an increase in tariffs will increase net exports and stimulate domestic employment.

Quiz 17: Part B: International Trade